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Cuba - What to watch - Indicators of Cuba’s future

Publisher: I always enjoy these “what to watch” articles by Jeff Franks of Reuters.

Cuba shut down its once-powerful sugar ministry and has begun a major reorganization of government as it moves ahead with reforms aimed at ensuring the survival of socialism once the current aging leaders are gone.

New regulations will allow Cubans to more freely buy and sell cars for the first time since the 1959 revolution, although some restrictions remain.

The health of Venezuelan President Hugo Chavez, Cuba’s top ally and economic partner, remains a worry as he battles an undisclosed type of cancer, for which he is being treated on the communist island.

A drilling rig contracted by Spanish company Repsol YPF is expected to arrive in Cuba in a few weeks to begin exploration for oil in the Caribbean country’s part of the Gulf of Mexico.

ECONOMIC REFORM

Cuba will replace its sugar ministry with a state holding company after years of declining sugar output that hit bottom in 2009 with the worst harvest in a century.

New energy and mining ministries will be created and other ministries eliminated in a broad reorganization to be completed by Dec. 31. Most state companies are controlled by ministries and lose money, but will be made independent in hopes of improving their performance.

Cuban media reports say there are now 333,000 people working in the self-employed sector, the growth of which is being encouraged because the cash-strapped government wants to slash a million jobs from its payrolls. The goal is to have a third—up from 15 percent in 2010—of Cuba’s work force of 5.2 million working in the “non-state” sector by 2015.

Cuban media said many state-owned small service businesses will be leased to employees starting this month to run essentially as private businesses, an extension of an experiment begun last year with barber shops and beauty salons.

Still to be announced are reforms, promised by President Raul Castro, that will liberalize the sale of homes and loosen restrictive travel and immigration rules.

Castro is trying to raise agricultural output by handing out idle plots for planting and other measures. Food production is up this year, but still below 2005 levels and farmers are complaining that reforms are slow in coming.

Two Canadian trading companies are under investigation as part of Castro’s campaign to crack down on corruption that he says is a drag on the economy.

What to watch:

—The pace and final version of reforms.

—The numbers and performance of the newly self-employed.

—Agricultural production.

FINANCIAL HEALTH

Cuba still is recovering from a liquidity crisis that led to a default on payments and freezing of foreign business bank accounts. President Castro said the bank accounts issue will be resolved by year’s end, but many companies say they are still owed money.

The government has said tax payments from the self-employed have increased revenues, while its top hard currency earners—tourism and nickel exports—have improved.

Castro said Cuba’s economy should grow 2.9 percent this year, up from 2.1 percent in 2010, but warned that global economic problems could darken the picture.

The first American tourists to visit Cuba under more flexible travel rules put in place by U.S. President Barack Obama began arriving in August. Some experts say as many as 100,000 additional Americans could come in under the new rules this year.

What to watch:

—Resolution of bank account access for foreign businesses.

—Effects of global economic problems.

—The growth of American travel to Cuba.

OIL PLANS

A Chinese-built drilling rig, the Scarabeo 9, is expected to arrive in Cuban waters by Nov. 1, where it will be used in the first major exploration of Cuba’s part of the Gulf of Mexico. Malaysia’s Petronas, in partnership with Russia’s Gazprom Neft, will get the rig after Repsol to drill in their offshore Cuban leases.

Thirty-four members of the U.S. Congress, led by Cuban-born U.S. Rep. Ileana Ros-Lehtinen of Florida, asked Repsol in a letter to drop its plans, warning it could face prosecution for violating U.S. laws. Repsol responded that it is breaking no laws.

U.S. oil companies are forbidden from operating in Cuba by a long-standing U.S. trade embargo.

Cuba depends on imports from its oil-rich ally Venezuela, but says it may have 20 billion barrels of oil offshore. The U.S. Geological Survey has estimated 5 billion barrels.

China has signed an agreement to play a major role in increasing Cuban oil production and its state oil company is said to be considering leasing exploration blocks in Cuban waters. China has also committed to negotiations of contracts for a $6 billion expansion of Cuba’s Cienfuegos refinery and a liquefied natural gas project.

What to watch:

—Arrival of drilling rig.

—Results of Repsol’s exploratory well.

—U.S. pressure to stop the drilling.

—China’s growing involvement in Cuban oil development.

FOREIGN RELATIONS

A major concern for Cuba is the health of Chavez, who provides 114,000 barrels of oil a day and investment to Cuba.

He has been undergoing chemotherapy in Cuba and said he expects a full recovery, but his death or departure from office would be a big blow to the island. Chavez is very close to former leader Fidel Castro, who is 85 and increasingly frail.

U.S. Cuba relations, which thawed briefly under Obama, have been frozen by the imprisonment of U.S. aid contractor Alan Gross. He is serving a 15-year sentence for providing Internet gear to Cuban groups under a U.S. program promoting Cuban political change.

Former New Mexico Gov. Bill Richardson, a veteran diplomatic troubleshooter, visited Cuba in September to try to negotiate Gross’ release, but left empty-handed and on bad terms with the Cuban government.

Cuba is angry that five Cuban agents have been jailed in the United States since 1998, and has given no indications that Gross will be released early.